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business
business accounting

Questions and Answers of Business Accounting

Unfortunately, the wood Jon wanted was not available on 4 January and he had to purchase a more expensive type. However, he kept his order as small as possible and his supplier was able to meet his
Hazelwood Products Ltd started making bookshelves on 1 January. The goods received notes and the materials requisitions show the following receipts and issues of wood during the first 3 days. As you
Draw a diagram showing the flow of documents used to control the movement of materials.
Describe the main stages for calculating the total cost per unit under an absorption costing system.
Explain what it means to allocate, apportion and absorb indirect costs.
Discuss the advantages and disadvantages of using an absorption costing system for calculating the total cost of a product.
The monthly production overheads for Toy Craft Ltd are as follows:The business has two production cost centres and one service cost centre, details of which are given below.Required (a) Decide on a
West Wales Windsurfers Ltd makes two models of windsurfer: the Fun Wave and the Hot Racer. The company has two production departments. It also has a canteen, which serves all employees. The predicted
What problems do you think might arise from using a predetermined overhead rate instead of an actual rate?
Jon Hazel's business, Hazelwood Products Ltd, has expanded and now makes bookcases of different sizes. Instead of a single production department, Jon has found it more efficient to divide the work
Returning to our example of Jarvis Jackets Ltd, now calculate the hourly overhead absorption rate for each department. You can choose to base the rate on direct labour hours or on machine hours. The
Jarvis Jackets Ltd makes leather jackets. It has two cost centres: the cutting department where the jackets are cut out by machine, and the stitching department where they are sewn and finished. Some
In the previous example of Hazelwood Products Ltd, was the method used a solution to the first or the second of these problems?
Hazelwood Products Ltd, the business we looked at in previous chapters, is thriving. During the first year, the workshop made 1,000 bookcases with the same design and size specifications. Production
Due to the increased complexity of production operations, many manufacturing businesses now use computer-controlled operations and robotic methods of production (car manufacturers, for example). Why
List the various activities that the owner of a takeaway pizza business has to undertake in order to make and deliver pizzas to customers.
A business makes two products (Product A and Product B). Using the following information for the month of January, calculate the total production cost of the two products for the period. Direct
What are the advantages and disadvantages in using a blanket rate?
What do you consider are the main benefits and drawbacks to adopting an activity- based costing system?
Discuss the reasons why accountants have developed ABC as an alternative to the traditional method of absorption costing for charging overheads to products or services.
Describe the four main stages in implementing a system of activity-based costing, defining all terms used.
Write a short report discussing the types of business where ABC might be appropriate and the advantages and disadvantages of implementing this type of cost accounting system.
Continental Communications Ltd manufactures two types of telephone: the standard and the advanced. The budget for the next financial year is as follows:Required (a) Calculate the total cost per unit
Parfums de Paris AG has a factory in France producing two aromatherapy oils. Sweet Pea is intended for the younger market and Allure is aimed at the more mature customer. The most significant costs
Classify the following costs for a manufacturing business into variable and fixed costs:■ depreciation on machinery■ direct materials■ direct labour■ factory rent and rates
Explain how the following figures have been calculated and identify the correct cost of the additional 500 miles.(a) £205(b) £116(c) £35
Circle the correct answer in the following statements:(a) If activity increases, total fixed costs will increase/decrease/stay the same.(b) If activity increases, the fixed costs per unit will
Circle the correct answer in the following statements:(a) If activity increases, total variable costs will increase/decrease/stay the same.(b) If activity increases, the variable cost per unit will
Using graph paper, draw a breakeven graph for Mementos Ltd. Assume that the maximum level of activity is 900 models.
Icetreats Ltd makes three types of ice lolly and shares its fixed overheads equally over the three types. A summary of the income statement for last month is shown below.The sales director has
So far the business has only made one model: the Westminster Abbey. Direct materials for this model cost 60p, direct labour 30p, packaging 15p per unit and it sells for £2.30. It has now been
Describe the purposes of marginal costing and the importance of contribution.
Explain the impact of limiting factors and how you would allow for them. Use a worked example to illustrate your answer.
Funfair Engineering Ltd manufactures fairground equipment. The company uses absorption costing and has been experiencing falling demand for its products due to the economic recession. Steve Wrench,
Edwards & Co Ltd manufactures teddy bears. The company’s bears are in demand all year round and in the next financial year the sales manager plans to sell 12,000 teddies. The management accountant
Audiomax Ltd manufactures three models of audio systems: Premier, Deluxe and Superior. When planning next year’s production, the management team wants to make sure the most profitable mix of models
Describe the main stages in budgetary control and the specific purposes of a system of budgetary control.
Discuss the advantages and disadvantages associated with systems of budgetary control.
Explain the difference between a fixed budget and a flexible budget, using an example to illustrate your answer.
The managing director of Leisure Magazines Ltd has recently introduced a budgetary control system. The accountant drew up budgets for the advertising and editorial departments based on the actual
John Smith is planning to start a business selling bicycles on 1 January 2014. He has £25,000 capital to invest in the business and has arranged a bank loan of £25,000 over 5 years with a fixed
When an organization has a budgetary control system, internal planning and control should be improved, which must be a considerable advantage. What other advantages might there be, and what are the
Richard Pillinger manages a farm that produces early crops by growing them in large polythene tunnels. Complete the following budget report for May by calculating the variances and indicating whether
Write a brief report to the managing director explaining why he should not be so pleased with the results. Support your report with calculations.
Calculate the number of torches that must be manufactured each month.
Both the production manager and the marketing manager of Cascade PLC need to know how many shower units they plan to sell in the coming year so they can ensure that the number of shower units to be
Give an example of a budget using the knowledge you have gained from your studies so far.
Make a list of the factors that management should consider when arriving at their assumptions about what is going to happen to their markets and the business environment.
Calculate and suggest possible reasons for the materials price variance from the following data:■ Standard price is £4 per kilo■ Standard usage is 5 kilos per unit■ Actual price is £3 per
Calculate and suggest possible reasons for the materials usage variance from the following data:■ Standard price is £50 per tonne■ Standard usage is 1,000 tonnes■ Actual price is £50 per
A manufacturing company has set a standard price for materials of £100 per kilo and anticipates that it will make 4 units from 1 kilo of materials. The actual production is 200 units and 52 kilos of
A company plans to make 1 unit every 10 hours and the standard rate per hour is set at £9. In a financial period 50 units are made and this takes 460 hours. The total labour cost for the period is
Four years ago, your cousin Nikos set up Aphrodite Ltd, a small manufacturing company that manufactures shower screens. The business makes two models: Larnaca is the standard model and Paphos is the
A company has set one standard hour’s production at 500 units. In a 7-hour day, 4,000 units are produced. What is this output in standard hours?
In the Stitching Department of Jarvis Jackets Ltd 100 pockets can be made in one standard hour. In an 8-hour day, 950 pockets are produced. Determine whether this will give rise to a favourable or
Jarvis Jackets Ltd has decided to extend its range to include denim jackets. One jacket requires a standard usage of 3 metres of direct materials which has been set at a standard price of £2.20 per
Calculate the direct materials usage variance from the data for Jarvis Jackets Ltd.
Calculate the direct materials price variance from the data for Jarvis Jackets Ltd.
The management of Jarvis Jackets Ltd decides that it takes 6 standard hours to make 1 denim jacket and the standard rate paid to labour is £8.00 per hour. The actual production is 900 units and this
Calculate the direct labour efficiency variance from the data for Jarvis Jackets Ltd.
Calculate the direct labour rate variance from the data for Jarvis Jackets Ltd.
Make a list of advantages and disadvantages of standard costing.
Explain the purpose of capital investment appraisal in general. In addition, explain the purpose of the payback period method and the accounting rate of return.
Describe the advantages and disadvantages of the payback period method and the accounting rate of return.
The managing director of Jeffery’s Boatyard Ltd has £500,000 to invest in a new marine project and has asked you to provide information that will help him choose which is the more favourable of
The owners of Film Animation Ltd wish to expand the business by investing in new technology. They have the necessary capital and have identified two potential projects, only one of which can be
Wren Electronics Ltd has capital available for investment in new equipment and the directors are considering two 5-year projects, only one of which can be financed. Details of the annual net cash
The directors of The Cheddar Cheese Company Ltd are considering investing in a new packing machine. They have a choice of three suitable machines, each of which would cost £150,000 and each of which
At the same time as considering the hot dog van project, Jimmy is also considering investing £15,000 in the purchase of a fish and chip van. The van is expected to have an economic life of 5 years
Returning to the example of The Cheddar Cheese Company Ltd, which packing machine would you recommend the directors purchase on the basis of the payback period method?
Robbie Oliver already owns a successful restaurant in London. He is now considering opening a second restaurant in either Richmond or Hampton. Property is slightly cheaper in Hampton, but sales are
The directors of The Cheddar Cheese Company Ltd have a choice of three cheese packing machines, each of which would cost £150,000 and have an estimated useful economic life of 5 years, with no
Describe the advantages and disadvantages of using discounted cash flow methods for capital investment appraisal.
Compare the net present value method with the internal rate of return.
Kerry Melrose is considering an investment in audiovisual equipment costing £10,000 for her training business, Melrose Events. With the help of her accountant, Kerry has done her calculations on a
The managing director of Stuarts Boatyard Ltd has £500,000 to invest in a new marine project and has asked you to provide information that will help him choose which is the more favourable of two
Your Aunt Laura owns Bloomfield Laundry Ltd and has £50,000 to invest in new dryers. She has asked you to advise her on the financial viability of the project and tells you that she requires a 15%
How much would you be willing to lend now, if the interest rate is 15% and the borrower promises to repay £500 in 3 years’ time?
Keith Hackett is considering whether to buy computer-aided design equipment that will improve his cash flows by £30,000 per annum for the next 5 years. At the end of this time, the equipment will
In the previous example we concluded that at an interest rate of 15%, a positive NPV of £25,560 made Keith’s investment worthwhile. In other words, Keith would be getting a return on the project
Return to the example of The Cheddar Cheese Company Ltd in the previous chapter where we compared the simple payback period for three projects that involved investment in a packing machine. Using a
What sort of problems do you think might be associated with investment appraisal techniques based on discounted cash flows?
Consider whether any of the management accounting techniques described in this book could be used to provide information about a business’s competitive environment. Do any of these techniques
Identify some well-known companies that adopt product differentiation or cost leadership strategies.
(a) Explain whather the company is following a product differentiation strategy or cost leadership strategy and any problems associated with following such a strategy.(b) Explain how Euro Cars GmbH
Identify the product attributes of a tube of toothpaste. Hint: Think about the benefits that consumers require.
Prepare a strategic cost index for each component group of the Cyclone car and suggest how the company could redesign it to make its attributes more appealing to customers.
Explain how Euro Cars GmbH could reduce the cost of the Cyclone through value engineering and improved cost efficiency.
Using the above information, design a BSC for Euro Cars GmbH that provides suitable objectives, performance measures, targets and initiatives that support the company’s strategy.
Compare the costs of quality for the 2 years. What do the results reveal about the management of quality at Euro Cars GmbH?
Decide whether the quality management costs in the above table should be classified as prevention, appraisal, internal failure or external failure cost and use your analysis as the basis for a cost
Compare the costs of quality for the 2 years. What do the results reveal about the management of quality at Euro Cars GmbH?
Identify five costs related to the production of vehicles that Euro Cars GmbH could classify as environmental costs. Are these costs borne by the company, society in general or the local community in
(a) Using the original overhead apportionment basis, calculate the total amount of special waste overhead that would be allocated to the unit cost of a Cyclone.(b) Discuss whether the EMA information
Describe the target costing process. Explain its advantages over a cost-plus approach to product or service pricing.
Explain the purpose of environmental management accounting and explain how it can be used to assist in the management and control of environmental costs.
Stunt Ltd is a manufacturer of stunt scooters used for performing tricks and stunts in skate parks. A customer survey reveals that customers look for the following product attributes when purchasing
Electro Ltd manufactures a single electronic circuit board for the telecommunications industry. At the end of December 2011 the company received a letter of complaint from Telecom International PLC,
Contain Ltd produces aluminium transport containers for the airline industry, and faces intense competition from three competitors whose containers provide identical product attributes. As of 1
Briefly explain the difference between ‘control’ and ‘joint control’.

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